India’s Carbon Credit Trading Scheme (CCTS) and the Indian Carbon Market (ICM) 2026

The Carbon Credit Trading Scheme (CCTS), notified in June 2023 under the Energy Conservation (Amendment) Act, 2022, is India’s primary market-based instrument for pricing and reducing greenhouse gas (GHG) emissions from industry. The Act amended the Energy Conservation Act, 2001 (specifically empowering the Centre under Section 14(w)) to create a domestic carbon market. It supports India’s updated Nationally Determined Contribution under the Paris Agreement to reduce the emissions intensity of GDP by 45% by 2030 from 2005 levels, while allowing continued industrial growth.

Key institutional framework

- Administrator: Bureau of Energy Efficiency (BEE) under the Ministry of Power.

- Oversight: National Steering Committee for Indian Carbon Market (chaired by Secretary, Power; co-chaired by Secretary, MoEFCC).

- Registry: Grid Controller of India.

- Trading regulator: Central Electricity Regulatory Commission (CERC).

- Verification: Accredited Carbon Verification Agencies.

Two core mechanisms

1. Compliance mechanism (mandatory): Obligated entities in energy-intensive sectors receive intensity-based targets (tonnes of CO₂ equivalent per unit of product). Entities that beat the target earn tradable Carbon Credit Certificates (CCCs, each equal to 1 tCO₂e). Those that miss must buy and surrender equivalent certificates. Non-compliance attracts environmental compensation (generally twice the average CCC price). This is a gradual transition from the earlier Perform, Achieve and Trade (PAT) scheme.

2. Offset mechanism (voluntary): Non-obligated entities and projects can generate CCCs by reducing, removing or avoiding emissions against a baseline.

Phase-1 sectors include aluminium, cement, chlor-alkali, pulp & paper, iron & steel, fertiliser, petrochemicals, petroleum refining and textiles (roughly 490+ obligated entities covering a significant share of industrial emissions). Trading of CCCs is designed to occur on power exchanges.

UPSC relevance

- Environment & Climate: Carbon pricing versus carbon tax, intensity-based versus absolute caps, linkage to net-zero by 2070 and global carbon border measures (e.g., EU CBAM).

- Economy: Incentives for green investment and technology, industrial competitiveness, energy-efficiency transition.

- Governance: Inter-ministerial coordination, role of BEE, monitoring-reporting-verification (MRV) challenges.

Recent implementation has faced delays and temporary FY26 target waivers for some hard-to-abate sectors amid external economic shocks, illustrating the practical difficulties of operationalising a national carbon market.

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UPSC Prelims Question

Consider the following statements with reference to the Carbon Credit Trading Scheme (CCTS) of India:

1. It has been notified under the provisions of the Energy Conservation (Amendment) Act, 2022.

2. The Bureau of Energy Efficiency (BEE) serves as the administrator of the scheme.

3. Under the compliance mechanism, emission targets for obligated entities are set as absolute caps on total greenhouse gas emissions.

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Correct Answer: (a) 1 and 2 only

Brief Reasoning: Statement 1 is correct—the Energy Conservation (Amendment) Act, 2022 provides the legal basis for notifying the CCTS. Statement 2 is correct; BEE is the designated administrator. Statement 3 is incorrect because targets are intensity-based (emissions per unit of output), not absolute caps. This design permits production growth while rewarding cleaner processes, distinguishing CCTS from pure cap-and-trade systems used in some other jurisdictions.